How A Donor-Advised Fund Can Help You Leave a Legacy

Key Documents To Keep 7 Years Or More

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Aurthur Auerbach: Strange that this question would come up in the response to the previous question would that you could claim your parents? But this specifically relates to dependent children. If you have a dependent child who is not physically or mentally impaired, then if they are at age 24, if their gross income is equal to or greater than the value of the Personal Exemption which is $3,400 in 2007, $3,500 in 2008. If their gross income and they are age 24 as of December, 31st their gross income equals those amounts then the parents cannot claim that Dependency Exemption unless the child is physically or mentally impaired. So that's why the question about age comes in here.

Also, it be would be -- at this point in answering the questions on Tax Prep, here are some key ages particularly for Dependent Children. When the child is born you need a Social Security Number. So in order to claim the Dependency Exemption on a tax return the child needs a Social Security Number or an Individual Tax Identification number known as an ITIN. Now that might be important for some folks who are adopting children from abroad, the child was not born here, does not have an American Social Security Number, but the adoption is still in progress and the child is living with you. You need to file, a form W7A for adoption, get an ITIN for that child and that's what you write on the tax return because if you don't have an Individual Tax Id number or a Social Security Number you will not be able the claim the Dependency Exemption for anybody, so you need that number on the return.

The next key age is age 13. That's the cut off for the Child Care Credit. So if you and your husband both work or a husband and wife both work, you put the child in daycare or some continuing care before or after school and you want to claim a tax credit, once the child reaches age 13, that credit stops in the Tax Code. The next key age for a dependent child is age 17; that is the Per Child Tax Credit that is determined by your Adjusted Gross Income. You can get a credit of anywhere up to $1,000 per dependent who was less than age 17 as of December, 31st. The next key age for a dependent child is age 19. At age 19, it is recognized that the child can earn some money and they may be of at college somewhere. So if you have a fulltime college student as a dependent child at 19 there are special rules there and then we come to the rule at age 24.

Lastly, and this is something that will only be covered here is there is an item in the Federal Tax Law called the Kiddie Tax and generally, if the child has what's known as unearned income, that's interest, dividends, distributions from a trust that somebody set up then that child if that's more than $850, that child will be taxed at their parents' tax rate called the Kiddie Tax.